Financial Results Overview and Performance Outlook · 2012. 5. 24. · Financial Results Overview...

Masakazu Tokura, President

May 11, 2012

Financial Results Overviewand Performance Outlook

Financial Results Overview and Performance Outlook 2

Agenda

Financial Results Overview and Outlook 3

Current Management Priority Issues 11

Enhance Financial Strength 13

Framework of Our Next Corporate Business Plan 23

Dividend Policy 39

1

2

3

4

5

1. Financial Results Overview and Outlook


Financial Results and Outlook

Naphtha Price ¥54,900/kl ¥65,000/klExchange Rate ¥79.08/US$ ¥82.50/US$

FY2011 FY2012 (Forecast) Change

Sales 1,947.9 2,230.0 +282.1

Operating Income 60.7 90.0 +29.3Equity in Earnings of Affiliates 2.0 16.0 +14.0

Ordinary Income 50.7 95.0 +44.3

Net Income 5.6 40.0 +34.4

Dividend per Share ¥9/share ¥9/share

(Billions of yen)


FY2011 FY2012 (Forecast) Change Sales Price

Variance

Shipping Volume Variance

Foreign Exchange Translation Variance

Basic Chemicals 284.3 310.0 +25.7 +5.5 +18.2 +2.0

Petrochemicals &Plastics 672.4 830.0 +157.6 +48.0 +97.6 +12.0

IT-related Chemicals 293.1 360.0 +66.9 -24.0 +85.9 +5.0

Health & Crop Sciences 264.1 290.0 +25.9 +1.5 +24.4 0.0

Pharmaceuticals 380.5 380.0 -0.5 -10.0 +5.5 +4.0

Others 53.4 60.0 +6.6 - +6.6 0.0

Total 1,947.9 2,230.0 +282.1 +21.0 +238.1 +23.0

Sales Outside of Japan 1,009.0 1,250.0 +241.0Percentage of Sales Outside of Japan 52％ 56% + 4%

FY2012 Sales by Segment(Billions of yen)


FY2011 ¥60.7 billion → FY2012 ¥90.0billion (+¥29.3 billion)

(¥ billion)

0

300

600

900

1200

Margins-51.0

Costs

+28.0

Volumes& others

+52.3

60.7

FY2011 FY2012(Forecast)

90.0

Change in Operating Income FY2011/FY2012


FY2011 FY2012 (Forecast) Change Major Factors for

Changes in Profit

Basic Chemicals 9.3 9.0 -0.3 • Improvement in margins• Increase in shipping volumes

Petrochemicals & Plastics 6.2 11.0 +4.8 • Increase in shipping volumes

• Reduction in margins

IT-related Chemicals 11.0 24.0 +13.0• Increase in shipping volumes• Progress in rationalization• Decrease in sales price of

LCD-related materials

Health & Crop Sciences 26.5 34.0 +7.5

• Increase in export sales in yen terms due to the depreciation of the yen

• Increase in shipping volumes

Pharmaceuticals 20.9 27.0 +6.1• Decrease in SG & A• Increase in shipping volumes• Impact of NHI drug price revision

Others -13.2 -15.0 -1.8

Total 60.7 90.0 29.3

FY2012 Operating Income by Segment(Billions of yen)


FY2011 Financial Results and Outlook for FY2012

Naphtha Price ¥54,900/kl ¥65,000/klExchange Rate ¥79.08/US$ ¥82.50/US$

FY2011 FY2012 (Forecast) Change

Sales 1,947.9 2,230.0 +282.1

Operating Income 60.7 90.0 +29.3Equity in Earnings of Affiliates 2.0 16.0 +14.0

Ordinary Income 50.7 95.0 +44.3

Net Income 5.6 40.0 +34.4


(Billions of yen)


Trends in Performance

Sales, Ordinary Income, Net Income

1,621

1,982 1,9482,230

1,5571,296

1,7901,897 1,788

40

8461

95

2415

-59

6

636591 94

124141

158

35

-33

93

-1,000

-500

0

500

1,000

1,500

2,000

2,500

-100

-50

0

50

100

150

200

250

Sales （left axis） Net Income/Loss （right axis） Ordinary Income/Loss (right axis）

ＦＹ2005 ＦＹ2006 ＦＹ2007 ＦＹ2009ＦＹ2008ＦＹ2004 ＦＹ2010 ＦＹ2011 ＦＹ2012(Forecast)

(Billions of yen) (Billions of yen)


FY 2012 Outlook (comparison with FY 2012 targets)

(Billions of yen)

※Targets set in our three year corporate business plan

FY 2012 (Target)*

FY 2012 (Forecast)

Major Factors for Differences in Profit

Sales 2,400.0 2,230.0

Significant fall in demand due to weak economy

Appreciation of the yen

Operating Income 190.0 90.0

Ordinary Income 220.0 95.0

Net Income 140.0 40.0

Naphtha Price ¥50,000/kl ¥65,000/kl

Exchange Rate ¥90/US$ ¥82.5/US$

2．Current Management Priority Issues


Current Management Priority Issues

Last 10 Years 2 to 3 Years Next 10 to 20 Years

20112001

Pave the way for future growth

Establishedand expanded

IT-related Chemicals

Sector

Launched DSP,Acquired Sepracor

RabighProject

Development of New Businesses

Environment and

Energy

Life Sciences ICT

Globalization Promote globally integrated management

2020~30

(Tackle Three Management Priority Issues)

Improve profitability

Enhance financial strength

Rigorously select investments

Improve asset efficiency

3. Enhance Financial Strength


Current Management Priority Issues

2 to 3 Years Next 10 to 20 Years

20112001

Development of New Businesses

Environment and

Energy

Life Sciences ICT

Promote globally integrated management

2020~30



Sector


RabighProject

Globalization



Improve asset efficiencyImprove asset efficiency

Last 10 Years

Pave the way for future growth(Tackle Three Management Priority Issues)

Enhance financial strength


Results Achieved in Major Projects

Three Management Priority Issues

Major Projects

Investment

ResultsSales (FY00→FY10)

Strengthen fundamentals of petrochemicals

business

Implementation of Rabigh Project

Approx. ¥166.0 bn

Petrochemicals & Plastics Sector

(¥375.5 bn → ¥649.9 bn)

Gain critical mass in pharma business to

achieve strong growth

Launch of Dainippon Sumitomo Pharma,

acquisition of Sepracor in US

Approx. ¥219.0 bn

Pharmaceuticals Sector

(¥156.7 bn → ¥365.9 bn)

Develop new core business

Establishment and expansion of

IT-related Chemicals Sector

Approx. ¥355.0 bn

IT-related Chemicals Sector

(¥60.2 bn → ¥322.3 bn)

(equity investment and lending)

Total project cost $10.1 bn

(increased shareholding and acquisition)

(cumulative capital expenditures

in 10 years since inception)


Trends in Financial Ratios

487 485

795

9981,040 1,053

471485

674641

5790.92 0.90

0.800.70

0.61

1.03

1.21

1.37

32% 30% 33% 35% 33% 34% 33%27% 24% 22% 21%

1.46

0.670.62

0.00

0.30

0.60

0.90

1.20

1.50

1.80

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY110

200

400

600

800

1,000

1,200

Interest-bearing Liabiliies (right axis) Debt Equity Ratio (left axis) Shareholders' Equity Ratio

(Billions of yen)(Times)


Enhance Financial Strength


Enhance Financial Strength



Quickly maximize returns on major projects

Restructure/exit unprofitable businesses

Drastically reduce overhead costs

Minimize sensitivity of earnings to currency fluctuations

Keep investment cash flows within the range of operating cash flows

Reduce cash conversion cycle

Secure greater strategic freedom to aggressively pursue growth opportunities

＜Financial target by the end of FY2015＞• Interest-bearing debt: under ¥900.0 billion• Debt equity ratio: under 0.9 times


Improve Profitability: Drastically Reduce Overhead Cost

Increased corporate overhead costs to support the globalization of our operations (incl. research costs)

Cut overhead costs by 15 billion yen by fiscal 2015, a 15% reduction from fiscal 2011, with a particular

focus on corporate overhead costs

Streamline research activities (increase

productivity)

Improve the efficiency of service functions(through shared service

and outsourcing of administrative functions)

Improve overall operational efficiency


Expand overseas production

Better balance foreign currency denominated payables and receivables (e.g., by increasing US$-denominated purchase of raw materials for products sold in US$, such as polarizer film)

Improve Profitability: Minimize Sensitivity to Currency Fluctuations

Halve sensitivity of operating income to foreign exchange rate fluctuations from over 4 billion yen to

over 2 billion yen per year for each one-yen movement against US$


Improve Asset Efficiency: Reduce Cash Conversion Cycle (CCC)

Target

Shorten accounts receivable terms

Reduce and optimize inventory levels

Extend accounts payable terms

Our initiatives

CCC = accounts receivable turnover + inventory turnover- accounts payable turnover

CCC

Estimated cash flow improvementbetween FY2011 and FY2015

resulting from these initiatives

87106

92 95

69

7356

7656

7357 77

58

40

84

114108126

104

55

0

20

40

60

80

100

120

140

160

180

200

FY2008 FY2009 FY2010 FY2011 FY2015 (Target)

Inventory CCCAccounts receivable Accounts payable

(Days)

¥130 billion

Reduce CCC by 25% from FY2010 level by FY2015


Targets on Enhancing Financial Strength

Interest-bearing Liabilities

Debt Equity Ratio

End of FY2011 By the end of FY2015

¥1,053.0 billion Under ¥900.0 billion

End of FY2011 By the end of FY2015

1.5 times Under 0.9 times


Trends in Financial Ratios

795

9981,040 1,053 1,070

900

487 485

471485

674641

5790.92 0.90

0.800.70

0.61

1.03

1.21

1.37

32% 30% 33% 35% 33% 34% 33%27% 24% 22% 21%

0.9

1.46

0.670.62

0.0

0.3

0.6

0.9

1.2

1.5

1.8

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY150

200

400

600

800

1000

1200

Interest-bearing Liabiliies (right axis) Debt Equity Ratio (left axis) Shareholders' Equity Ratio

(Billions of yen)(Times)

(Forecast) (Target)

4．Framework for Our Next Corporate Business Plan


Framework for Our Next Corporate Business Plan

Last 10 Years FY2012 Next 10 to 20 Years

2001




Next Three-Year Corporate

Business Plan

Step 1: Enhance financial strength

2020-302011 2013-15



Sector


RabighProject

Globalization Promote globally integrated management

Environment and

Energy

Life Sciences

ICT

Development of New Business

Pave the way for future growth(Tackle Three Management Priority Issues)

Step 2: Develop a new growth path



Quickly maximize returns on major projects

Restructure/exit unprofitable businesses

Drastically reduce overhead costs

Minimize sensitivity of earnings to currency fluctuations


Keep investment cash flows within the range of operating cash flows


Reduce cash conversion cycle

FY2012 FutureNext Three-Year Corporate Business Plan

Promote globally integrated management (ongoing management priority issues)

Accelerate development of new businesses (medium- to long-term management priority issues)

Step 1: Enhance financial strength (short-term management priority issues)

Step 2:Develop a new growth path

Focus resources on high -growth area

Quickly establish new businesses

Framework for Our Next Corporate Business Plan

Development of New Businesses (Medium- to Long-Term Management Priority Issues)


Contribute to the sustainable development of society

Offer products that help solve global challenges = Develop new businesses

Promote Creative Hybrid Chemistry and Solution-Oriented Development

Environment and

Energy

High- precision

processing

Design of functional organic

chemicals and polymers

Design of functional inorganic materials

Device design

Genomics Catalyst design

Life Sciences

Information and

Communication Technology

Combine and leverage six core technologies


Commercialization Timeline （Environment and Energy, ICT)

EnergyCreation

Energy Storage

EnergySaving

EnergyManagement

Commercialization Timeline2011 2015 2020~

Lithium-ion secondary batteries (separators)

High voltage lithium-ion secondary batteries(cathode materials)

Silicon solar cells(HEVA, electrode paste, etc.)

Organic thin-film photovoltaicsUltra-high-efficiency photovoltaic(epitaxial wafer)

LED lighting applications (sapphire substrates and alumina, etc.)

PLED lighting

Power semiconductors (epitaxial wafers)

Proton exchange membrane fuel cells (automotive applications)

High thermal conductive resin

Environment CO2 separationDiesel particulate filters

ICT Next generation polarizing filmsPLED (displays)

Organic semiconductors


Life Sciences: LATUDA

FY2012 FY2014

50

0

(Forecast)

Additional indications and expansion of markets

(Billions of yen) Schizophrenia Canada: NDS submitted in June 2011 Japan: New Phase III study under preparation China: IND submitted in September 2011 Europe: Phase III study underway

(Joint development with Takeda Pharmaceutical)

Schizophrenia (change of maximum dose) US: sNDA submitted in June 2011

Approved in April 2012

Bipolar disorder (depression) US: sNDA submitted in 2012

Approval of additional indication expected in 2013

Bipolar maintenance US, Europe and other:

Phase III studies to be initiated in 2Q 2011

MDD with mixed features US: Phase III studies to be initiated in 2Q 2011

LATUDA Sales Projection in the US

(Target)


Life Sciences: Mechanisms of Action of BBI608 and BBI503

Treatment by chemotherapy Recurrence

Development of heterogeneity by gene and epigenetic changes-Resistance to chemotherapy

Metastasis

Development of heterogeneity by gene and epigenetic changes-Resistance to chemotherapy

The “red cells (CSC)” are not controlled by existing therapy, and CSC tumorigenisty (self-renewal activity), recurrence or metastasis takes place.

The “red cells (CSC)” are not controlled by existing therapy, and CSC tumorigenisty (self-renewal activity), recurrence or metastasis takes place.

BBI-608 and BBI-503Anti-Cancer Stem Cell drugs

Drugs targeting cancer stem cells are expected to offer significant advances over current therapies

Cancer stem cells (CSC) survive(Chemotherapy resistance)


Life Sciences: Outline of BBI608 and BBI503

Phase1 Phase2 Phase3Pre-clinical

Product Target Indication

First-in class, Molecular Targeted Drugs (small molecular compound, Oral agent）

Excellent efficacy in monotherapy and combination with chemotherapy by inhibiting both growth of tumor cells and maintenance of cancer stem cells

Highly safe, easy-to-use with existing chemotherapy. No particular hematologic toxicity observed

BBI608

First-in class, Molecular Targeted Drugs (small molecular compound, Oral agent)

Excellent efficacy in monotherapy and combination with chemotherapy by inhibiting both growth of tumor cells and maintenance of cancer stem cells by the different mechanism to BBI608.

Highly safe, easy-to-use with existing chemotherapy.

BBI503

Product Target Indication

BBI608 Colorectal (2nd/3rd line, monotherapy)

Colorectal (2nd/3rd line, combo)

Colorectal (1st line, combo)

Solid tumor (2nd/3rd line, combo with Paclitaxel)

BBI503 Solid tumor (monotherapy)

Pre-P1b

P3 preparation

P2 ongoing

P1b/2 ongoing

P1 ongoing

Predictedlaunch year

2015 (earliest)


Strategy for Printable Polymer Organic Light Emitting Diodes

PLED lighting

PLED materials

for displays

Organic semiconductor

Organic photovoltaics

Applications in Printed ElectronicsApplications in Printed Electronics


PLED Materials for Displays

Small-molecule organic light emitting diodes (SMOLEDs)

Production costs are lower with printable PLEDs

because the equipment needed costs less and the production process is simpler.

Dry processVacuum deposition method

Wet processPrinting method

Polymer light emitting diodes (PLEDs)

Vacuum deposition system equipped with multiple deposition chambers.

Applicable to various types of printing machines as needed

•Inkjet printer•Slit die coater

Man

ufac

turin

g eq

uipm

ent

Pro

duct

ion

proc

ess

Stru

ctur

e of

laye

rs Many layers Few layers


PLED Lighting

Participation in “Light+Building” for the first timeSumitomo Chemical’s exhibit, designed by Motoko Ishii, world-renowned Japanese lighting designer, will have panels with 60 subtle color variations, taking advantage of the ability of PLEDs to apply a spectrum of colors using a single-layer process

Date April 15 -20, 2012

Place Messe Frankfurt

Ouline Light+Building is one of the world’s biggest trade fairs for lighting and intelligent buildings held every two years

Promote Globally Integrated Management(Ongoing Management Priority Issues)


Promote Globally Integrated Management

IT-related ChemicalsKorea Built a touch sensor panel production facility Built a sapphire substrate production facilityChina Built a supply chain

Basic ChemicalsSingapore Increase methyl methacrylate production capacityPoland Studying investments in DPF production facilities

PharmaceuticalsUS Launched LATUDA Acquired BBIEurope License agreement with Takeda Pharmaceuticals for the joint development and exclusive commercialization of lurasidone

Singapore Building a S-SBR production plantSaudi Arabia Studying Rabigh Phase II project

Petrochemicals and Plastics

Overseas

Production

FY201140%

Health & Crop ScienceAustralia Comprehensive business alliance with NufarmUS Collaboration with Monsanto


Globalization in the Last 10 Years

0

200

400

600

800

1,000

1,200

1,400

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY20120.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Asia North AmericaEurope Middle East and AfricaCentral and South America Oceania and OthersPercentage of Sales Outside of Japan

Starts production of Rabigh complex;Acquires Sepracor

Decides to implement Rabigh Project; Completes the 2nd phase expansion of MMA in Singapore

Starts production of polarizing film in Taiwan

Starts production of polarizing film in South Korea Acquires CDT

Completes the 3rd phase expansion of MMA in Singapore

Forms comprehensive business tie-up and makes strategic investment in Nufarm

Percentage of overseas production in FY2011: 40%

(Billions of yen) (%)

(Forecast)


Globalization

FY2010 FY2011 FY2012 (Forecast)

Overseas sales to total sales 53% 52% 56%

Overseas production to total production 40% 40% 43%

Overseas headcount to total headcount 38% 39% 40%

5. Dividend Policy


Dividend Policy

(Billions of yen)(Yen)

3 4 6 6 6

3

5 3

6

6

6

3

67

6

5

15

-59

63

24

9491

6540

6

-4

-2

0

2

4

6

8

10

12

14

16

FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012-60

-30

0

30

60

90

120

150

180

210

Interim Dividend (left axis) Year-end Dividend (left axis) Net Income (right axis)

3

We consider shareholder return as one of our priority management issues and have made it a policy to maintain stable dividend payment, giving due consideration to our business performance and a dividend payout ratio for each fiscal period, the level of retained earnings necessary for future growth, and other relevant factors.

810

12 12

9

6

9 9

(Forecast)

9


Creative Hybrid Chemistry

Appendix- Overview of FY2011 Financial Results


Overview of FY2011 Financial Results

FY2010 FY2011 Change

Sales 1,982.4 1,947.9 -34.6

Operating Income 88.0 60.7 -27.3

Equity in Earnings of Affiliates 10.8 2.0 -8.8

Ordinary Income 84.1 50.7 -33.4Extraordinary Gains/Losses -8.4 -26.8 -18.4Income Taxes -34.8 -8.3 +26.5Minority Interests -16.4 -10.1 +6.4

Net Income 24.4 5.6 -18.8

Naphtha Price ¥47,500/kl ¥54,900/kl

Exchange Rate ¥85.74/US$ ¥79.08/US$



FY2011 Sales by Segment

FY2010 FY2011 Change Sales Price Variance

Shipping Volume Variance

Foreign Exchange Translation Variance

Basic Chemicals 302.3 284.3 -17.9 +6.5 -20.0 -4.4

Petrochemicals &Plastics 649.9 672.4 +22.5 +79.0 -30.3 -26.1

IT-related Chemicals 322.3 293.1 -29.2 -33.5 +16.8 -12.5

Health & Crop Sciences 250.8 264.1 +13.3 0.0 +23.1 -9.7

Pharmaceuticals 410.6 380.5 -30.1 - -19.9 -10.2

Others 46.6 53.4 +6.8 - +6.8 0.0

Total 1,982.4 1,947.9 -34.6 +52.0 -23.6 -62.9

Sales Outside of Japan 1,056.7 1,009.0 -47.7Percentage of Sales Outside of Japan 53％ 52％ -1%

(Billions of yen)


Change in Operating Income FY2010/FY2011

0

25

50

75

100

125

88.0

60.7

FY2010 ¥88.0 billion → FY2011 ¥60.7 billion(-¥27.3 billion)

(Billions of yen)

Costs +32.5

Volumes& others

-15.3

FY2010 FY2011

Margins-44.5


FY2011 Operating Income by Segment

FY2010 FY2011 Change Major Factors for Changes in Profit

Basic Chemicals 20.6 9.3 -11.3

Reduction in margins

Decrease in shipping volume

Petrochemicals& Plastics 11.1 6.2 -5.0

Decrease in shipping volume

IT-related Chemicals 26.1 11.0 -15.2

Decrease in sales prices of LCD-related materials

Health & Crop Sciences 23.3 26.5 +3.2

Increase in shipping volumes

Pharmaceuticals 28.7 20.9 -7.7

Decrease in licensing revenue

Others -21.9 -13.2 +8.7

Increase in sales of electricity due to under supply of electricity

Total 88.0 60.7 -27.3

(Billions of yen)


Forward-Looking Statements

Statements made in this material with respect to Sumitomo Chemical’s plans, projections, strategies, beliefs, and future performance that are not historical facts are forward-looking statements that are based on information available at the time of the preparation of this material and include risks and uncertainties. Factors that could materially affect actual results of Sumitomo Chemical’s future performance include, but are not limited to, economic conditions in the areas of Sumitomo Chemical’s business, demand for Sumitomo Chemical’s products in markets, downward price pressure on Sumitomo Chemical’s products resulting from intensifying competition, Sumitomo Chemical’s ability to continue to provide products that are accepted by customers in highly-competitive markets, and movements of currency exchange rates.

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